FUD in the crypto world: Impact and strategies to face it

The term FUD is widely known among those participating in the crypto market. This phenomenon can significantly influence the investment decisions of market participants.

Understanding FUD

FUD, an acronym for Fear, Uncertainty, and Doubt, refers to the spread of negative or misleading information about a project, individual, or organization in the crypto market.

In the ecosystem of cryptocurrencies, FUD arises when negative, false, or exaggerated news about an asset or project is spread with the intention of generating panic among investors. This phenomenon usually leads to massive sell-offs of the affected assets, causing abrupt price drops in short periods.

Another common psychological phenomenon in the crypto market is FOMO (Fear Of Missing Out), which can have a considerable impact on market dynamics depending on its intensity and the actors involved.

Psychological Profile in the Face of FUD

Generally, those most susceptible to FUD are novice traders and investors in the crypto market. Some common symptoms include:

• Making hasty decisions based on negative information without verifying its truthfulness
• Obsessive monitoring of orders and open positions
• Lack of strategy or planning in operations
• Reacting impulsively to news without a complete analysis of the context
• Insecurity in one's own judgments due to lack of analytical skills

For example, a trader who has bought a token and expects a price increase might panic over a false rumor that the token will be delisted from a trading platform. If the trader does not verify the information and acts hastily by selling at a loss, they would fall victim to FUD.

Origin of FUD in crypto

FUD is often a strategy used by organizations and influencers in the crypto market to favor their own interests.

Social media has become a powerful communication tool for crypto projects, but it is also fertile ground for the rapid spread of FUD.

The creators of FUD use social platforms or media to spread false information about projects, such as supposed government regulations, fraud accusations, or manipulation rumors. The most common goal is to depress the price of a token to accumulate it at a low cost, and then generate FOMO to make profits.

In some cases, FUD can cause significant and even irreparable damage to the reputation of a project in the crypto market.

There are also cases where FUD is generated simply out of personal animosity towards a specific project or token.

Consequences of FUD in crypto

For projects, FUD can cause drastic drops in the price of their tokens due to the imbalance between supply and demand. Small projects are especially vulnerable and can collapse if they fail to counteract FUD and regain the trust of investors.

For investors and traders, FUD can generate fear and insecurity, leading to hasty decisions and financial losses. This can gradually erode their assets and their confidence in the crypto market in general.

FUD can also create a negative perception of cryptocurrencies among potential investors, becoming an obstacle to mass adoption.

Strategies to Face FUD

While it is impossible to completely avoid FUD, there are ways to mitigate its impact:

• Develop solid knowledge and conduct thorough fundamental and technical analysis to objectively evaluate projects.
• Establish a trading plan with stop-loss, entry and exit points, and capital management before trading
• Evaluate the risk-reward relationship of each investment decision
• Maintain strategic coherence, but with flexibility to adapt to changes in the market
• Verify the information from official sources before making decisions (DYOR - Do Your Own Research)
• Avoid impulsive reactions to news or specific events

Emblematic cases of FUD in crypto

Bitcoin FUD in China

Over the last decade, the Chinese government has repeatedly imposed bans on Bitcoin and cryptocurrencies, generating FUD and causing drops in the crypto market. Some notable milestones:

• 2013: Prohibition of the use of Bitcoin as a means of payment
• 2014: Prohibition of local exchanges
• 2017: Ban on ICOs and forced closure of exchanges
• 2018: Restrictions on mining and trading of cryptos
• 2019: Blocking of bank accounts linked to cryptos
• 2021: Repression against Bitcoin mining and declaration of illegality of crypto transactions

These actions have had a significant impact on the global market, forcing many exchanges to move their operations outside of China.

FUD from Gate due to regulatory accusations

In June 2023, Gate faced allegations of alleged violations of securities laws. Regulators considered that some tokens listed on Gate could be classified as unregistered securities.

This news caused a widespread drop in the crypto market, with Bitcoin and Ether recording losses of 5% and 4.5% respectively.

In the days that followed, Gate experienced significant fund withdrawals, although these represented only a small percentage of its total assets. Ultimately, Gate reached an agreement with regulators to continue operating.

FUD of USDT due to temporary loss of parity

In June 2023, USDT briefly deviated from its peg to the dollar, falling to $0.9972. This raised fears in the crypto community given USDT's status as the largest market capitalization stablecoin.

Unfounded rumors circulated about a possible permanent loss of parity similar to what happened with UST. Some investors reacted by selling USDT for USDC, while others took the opportunity to arbitrage the price difference.

The real cause was a large volume of USDT sales in a liquidity pool, creating a temporary imbalance. The situation quickly normalized once the misinformation that triggered the sales was clarified.

These cases demonstrate how FUD can significantly impact the crypto market, highlighting the importance of maintaining a critical perspective and verifying information before making investment decisions.